Worldspan bank debt dives into mid-90s terrain on termination of Orbitz contract

By Sara Rosenberg

New York, Oct. 2 - Worldspan LP's bank debt plummeted by around four to 4½ points on Thursday following news that one of the company's principal online customers, Orbitz Inc., is trying to terminate its agreement with Worldspan. Not only did the news prompt concern about the probability of a drop in Worldspan's revenues but the market was also worried about the possibility that other customers may follow suit and terminate their agreements.

The bank paper was quoted at 95½ bid, 96 offered, down from quotes around par prior to the announcement, according to various market participants.

"I'm trying to figure out what's going on," a fund manager said. "[Orbitz] is their second largest customer. They make up 10% to 11% of [Worldspan's] revenues. [Also], it can set a precedent for other larger customers to say if Orbitz dropped it why shouldn't we, and go somewhere cheaper."

On Thursday afternoon, Worldspan revealed that it received a notice of termination of its agreement from Orbitz effective Oct. 31.

"Orbitz claims that it has a right to terminate the agreement because of a material service level failure by Worldspan," the company said in a news release. "Worldspan has provided and continues to provide a superior level of service and Orbitz does not have the right to terminate the agreement. Worldspan is currently considering its remedies against Orbitz, including with respect to wrongful termination of the agreement."

Worldspan is an Atlanta travel technology resource for travel suppliers, travel agencies, e-commerce sites and corporations.

In the primary, Magellan Health Services Inc. held a bank meeting for its $230 million five-year exit financing facility, consisting of a $100 million term loan B, a $50 million revolver and an $80 million pre-funded letter of credit facility.

All three tranches were priced with an interest rate of Libor plus 350 basis points, according to a syndicate source.

Proceeds from the term loans will be used to repay existing bank debt.

Deutsche Bank is leading the deal for the Columbia, Md. managed behavioral healthcare company.

And, a bank meeting was held for Waste Connections Inc.'s $500 million credit facility on Thursday, with the main focus at this time being getting the revolver done since the institutional tranche was already reported to be well oversubscribed on Monday.

"There are a handful of banks that have signed on," a source close to the deal told Prospect News. "We feel very good about getting the $350 million done."

As was previously reported, besides Fleet and Deutsche, the joint lead arrangers on the deal, Wells Fargo, Credit Lyonnais, Union Bank of California and LaSalle Bank have signed on as agents.

In addition to the $350 million five-year revolver, which carries an interest rate of Libor plus 200 basis points, the deal also contains a $150 million seven-year term loan B with an interest rate of Libor plus 200 basis points (reverse flexed from price talk of Libor plus 250 basis points prior to the bank meeting due to the overwhelming market demand for the paper).

Among the reasons cited as being partly responsible for the strong demand for the deal are strong market technicals in which investor appetite outweighs supply and strong ratings for the credit facility.

Both the BB+ rating given by Standard & Poor's and the Ba2 rating given by Moody's Investors Service were upgrades from previous ratings.

Moody's upgrade was prompted by the relative stability and economic resilience of the company's revenues and profitability during a weak economy, its improved cash generation and improved leverage, and the maintenance of its business franchise mix despite significant growth though acquisitions.

S&P's upgrade was prompted by improving financial profile as evidenced by its attractive profitability, increased cash flow generation and management's disciplined growth strategy. The rating revision was also supported by the company's demonstrated operating strength, which benefits from the company's unique business strategy including a focus on secondary markets, and significant operations under exclusive franchisee contracts.

Proceeds will be used by the Folsom, Calif. solid waste company to refinance the existing revolver, which was set to mature in May 2005. Asked why the deal is being brought to market now, a company spokesman pointed at the bank loan market's strength as the impetus behind the decision.

Following up, AMN Healthcare Services Inc. closed on its new $205 million secured credit facility (Ba2/BB-), consisting of a $130 million term loan due October 2008 and a $75 million revolver. Bank of America was the lead bank on the deal.

Proceeds from the facility, combined with cash on hand, will be used to help fund the previously announced tender offer for up to an aggregate of $180 million of securities, consisting of $175 million of shares of its common stock, par value $0.01 per share, and $5 million of vested and exercisable stock options with exercise prices of less than $18 per share.

AMN is a San Diego temporary healthcare staffing company and of travel nurse staffing services to hospitals and healthcare facilities.

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